Should You Take Out Debt For Home Renos?

Are you a reality TV junkie? You’re not alone. The genre has boomed over the past decade, from a mere four shows in 2000 to over 300 on air today. And a particularly popular form of “reality” is the home renovation show – a magic mix of makeover, financial advice and plenty of drama.

But what you see on screen isn’t always what you get, and there’s evidence that some Canadians are gaining a warped sense of reno reality. For example, there’s the “HGTV effect” – a spike in renovation spending as a result of the lifestyle TV channel’s programming. Viewers are increasingly willing to pour their hard-earned dollars into pricey upgrades that they may not necessarily need. Coupled with rising real estate prices, this has contributed to a doubling in home renovation projects over the last 15 years in Canada.

Building In Value

David Fritz of Three Little Pigs Masonry says the type of renovations Canadians tend to overspend on are concentrated to two main rooms in homes: kitchens and bathrooms. He says homeowners are especially fond of using high-end finishes to create masterpiece rooms—like specialty store finishes, faucets and vanity sinks. It shouldn’t come as any surprise then that the most popular renovations take place in kitchens, bathrooms and finished basements, as those generally provide the highest return.

But this isn’t always the case – some renovations can be costly but don’t provide a big return. “Structural renovations such as underpinning, waterproofing, chimneys —all necessary – can affect the sale of a property as it is expected that the property has the essential components in good working order,” says Fritz. “Also, neighbourhood conformity is good in exterior renovations— over-the-top exterior renovations will not bring you higher return than your property is worth compared to the neighbours.”

The Nail in the Debt Coffin

It’s easy to get carried away when upgrading your home – so, how can you avoid falling victim to the rampant overspending? Debt help expert Blair Davidson, trustee in bankruptcy at BDO Canada Limited, offers tips to curb the impact of renovations on our spending.

“When people see reality TV, and you see the before and after, and all the problems are solved in half an hour, people are sort of romanced into getting renovations done and they might overspend,” says Davidson. “A lot of people will get home equity lines of credit to fund those renovations. Real estate has proved to be a good investment. At the same time, you don’t want to over burden yourself with debt so that the interest costs becomes a financial burden.”

DIY Budget Tips

Before you undertake a major home renovation, it’s important to create a budget and realize that borrowing isn’t always the answer.

“When you’re approaching a renovation project, you should review a budget for your regular household budget and expenditures to see what surplus may be available,” advises Davidson. “It might make sense to put surplus aside rather than borrowing to fund renovations.”

Davidson discusses the effects that reality TV is having on the real-world and how to give yourself a “reality check.”

“I think most people see reality TV as not really reality,” says Davidson. “People are living lifestyles that are beyond most people’s means. You can keep it in perspective. It’s really a form of advertising and will induce behaviour that will incur costs where you can overspend. You do have to keep it in mind that you have to live within your minds. It will give you a much healthier outlook on life if you aren’t facing financial pressures.”